Question

A government experienced significant loss of certain roadways and bridges as a result of major flooding. Which of the following estimation approaches would be most useful in estimating the amount of asset impairment that has occurred?a. Deflated depreciated replacement cost approach.b. Service units approach.c. Restorative cost approach.d. None of the above; each of these three approaches would be equally useful.

Answer 1

Answer:

.c. Restorative cost approach

Explanation:

Service unit approach : This approach is meant mainly for service units , providing service to the society. When there is decline in no of service unit due to change in circumstances or technological obsolescence, or due to legal factors etc. this approach is made .

Deflated depreciated replacement cost approach:  This method is adopted when a capital goods or asset undergoes change in the manner it is used or when there is change in the duration of use.

Restoration cost approach : This approach is made when there is sudden loss in the value of an asset due to some unforeseen circumstances like flood , fire etc. The cost required to restore the asset is taken into account in this approach.

The present case belongs to this category.